One of the most challenging parts of planning for retirement is never knowing exactly how much you need to save. It's impossible to predict what emergency costs could arise, and your plans for the future could also shift as you age.
This is why many people fall back on certain retirement "rules" about how much they should save. Here's what one of the most popular retirement savings rules says about how much the average worker should have saved by the age of 50.
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How much should the average 50-year-old have for retirement?
One popular rule of thumb for retirement savings says you should aim to have 1x your salary saved by the time you're 30. This should grow to 2x by 35, 3x by 40, and 4x by 45. By the time you're 50, you should have 6x your salary saved for retirement according to this rule.
The median salary among workers ages 45 to 54 was $1,275 per week as of the fourth quarter of 2023, according to Bureau of Labor Statistics data. This amounts to an annual income of $66,300. Multiplying this by 6, we get an estimated retirement savings goal of $397,800 for the typical 50-year-old. Or, if you prefer round numbers, you could call it $400,000.
You can use this as a baseline to estimate how you're doing, but it's important to realize the limitations of this approach to retirement savings. First, if you have a salary that's much higher than the $66,300 average figured above and you plan to maintain your lifestyle into retirement, you'll probably need more savings. In this case, you'd want to multiply your current salary by six to get a better estimate of what you'll need.
Even this may not give you a totally accurate result, though. Your salary has probably changed over your career. And you might plan to spend far less than what you're currently making in retirement. These factors can throw off the above calculation.
That's why many find it better to focus on the income they expect to need in retirement, rather than on multiples of their current salary. When doing this, keep in mind that you'll probably have money coming from Social Security, or possibly a pension, to help you cover your future costs.
What should you do if you're behind on retirement savings?
Don't be alarmed if your retirement accounts don't have anywhere close to $400,000 right now. You're definitely not alone. But it's helpful to set up a game plan for how you'll save going forward so you know approximately when you can afford to retire.
First things first, don't ignore the low-hanging fruit. If your company offers a 401(k) match, do your best to claim the whole thing every year unless your expenses are too high to permit this. And consider shifting at least some of your savings to low-cost investments, like index funds, if you haven't already to minimize how much you lose to fees each year.
Then, if possible, look for ways to boost the money you have coming in each month. This could mean reducing spending or taking on a side hustle to bring in a little extra cash. If you get a raise, you could also try setting this aside each year.
Be careful of annual contribution limits on your accounts so that you don't run afoul of the IRS. Adults 50 and older can contribute up to $30,500 to a 401(k) and $8,000 to an IRA in 2024. But putting away more than that in these accounts leads to costly penalties.
Despite your best efforts, sometimes it may not be possible to save as much as you'd hoped for retirement by your early to mid-60s. In that case, delaying retirement or opting for a phased retirement -- where you gradually cut back your hours over time -- is a great plan. Both options give you access to a steady paycheck for longer while also reducing your retirement cost.
Ultimately, you must decide which savings strategies work best for you. Choose the approach you think will work for you right now. Then, revisit it again in six months to a year or whenever you experience a major financial change. Keep course-correcting as you go to give yourself the best chance of reaching your ideal retirement.
